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surprise are not clear.
One of the difficulties in analysing the
implications of a UK exit from the EU is that there
are different views in the exit camp – and what
further confuses things is that now a number of
the leaders of the exit movement have decamped.
Grassroots Out had a heavy focus on the
perceived risks coming from largely uncontrolled
immigration. At a time of austerity, falling living
standards and rising levels of terrorism, this was
apparently attractive to a substantial proportion of
the electorate.
Vote Leave in contrast ran on what was
arguably a more principled campaign. The essence
of the Vote Leave argument was that Britain had
ceded too much power to an unaccountable,
undemocratic Brussels. Their assertion was that a
UK freed from bureaucratic red tape would go on
to prosper outside of the EU.
Unease with EU directives – particularly if they
are, or can be represented as a bit daft – is not
hard to generate. A classic episode of the Yes,
Minister television show had the aspiring Prime
Minister campaigning against the renaming of the
British Sausage as the Emulsified High-Fat Offal
Tube. While this campaign was successful in the
television show, Boris Johnson was less successful
in his Prime Ministerial aspirations.
These two very different approaches mean
that it is still not clear what the UK’s negotiating
stance will be (assuming there is scope for
negotiations with the EU). The more liberal
approach would be for the UK to maintain
as much access as possible to EU markets
while at the same time not being subject to
the requirement to fund various EU budget
expenditures, or for the UK to comply with
assorted EU directives and laws.
An approach more focused on limiting
immigration is likely to lead to less access to EU
markets for the UK. Traditionally, freedom of
movement of goods, services and capital in the
EU has required participating states to allow free
movement of labour as well. Whatever approach
is adopted, while the UK negotiates new treaties,
short-term disruption and uncertainty is likely to
continue in the UK, Europe and financial markets
more generally.
Already, there are delayed or cancelled
investment decisions in the UK and actual or
foreshadowed redeployment of employment or
production assets. Estimates of GDP loss ranging
from three to nine per cent appear plausible
if these eventuate in full. The speed, depth
and duration of these effects—on demand,
consumption and employment across industries—
will continue to drive uncertainty in UK and world
financial markets.
Another worrying aspect is that Brexit may
have detrimental impacts on the globalisation of
trade and investment. Such impacts would also
depress investment returns and very low (or even
negative) interest rates could occur in a number of
countries.
There already are those who argue that
economic activity in many countries is at a point
which can be described as ‘secular stagnation’,
where even very low interest rates are not
sufficient to stimulate investment and growth.
Adding the issue of Brexit on top of this is not a
particularly helpful development.
Superfunds August 2016